Before IRS can terminate an accepted OIC for failure of the taxpayer to stick to the straight-and-narrow for five (count ‘em, five) succeeding tax years post-acceptance, and make the taxpayer cough up the whole shebang (less what was previously paid), IRS must send a default letter, warning the delinquent to get with the pogrom.

Here, Brookhaven Appeals terminated without confirming issuance of default letter, and Judge Goeke won’t have that. See Coleman Moore, 2019 T. C. Memo. 129, filed 9/30/19.

Coleman claims he never got IRS’ billets doux. Moreover, the address on one of the checks he sent in to cover a late payment chop had his correct address on it, but his returns all had a P.O. Box, as did the 1040-V payment voucher that accompanied the check. Judge Goeke:  ”The address on this check is hardly clear and concise notification to respondent of petitioner’s change of address.” 2019 T. C. Memo. 129, at p. 27.

True, IRS can terminate an OIC for post-acceptance default. IRS may, but need not, allow a defaulter to cure, even though Coleman ultimately remedied every default. And even though his OIC got retro-bounced after he paid up the defaulted taxes, IRS can still terminate.

Except.

Both IRM Part 5 (exam) and Part 8 (Appeals) say there has to be the default letter before termination. And Coleman, a Caliifornian, is dealing with 9 Cir record rule.

“It is clear that the OIC was not terminated because of circumstances beyond petitioner’s control.  His default was his own doing.  He failed to carefully manage his income tax liabilities and filing obligations for five years after being granted a favorable OIC that was conditioned on his tax compliance.  He also failed to notify respondent of a change to his mailing address.  However, these failures on petitioner’s part do not excuse respondent’s failure to follow his own administrative procedures for terminating an OIC.  The administrative record does not contain a potential default letter providing an opportunity to cure the noncompliance.  If respondent did send a potential default letter to petitioner’s last known address, it is unlikely petitioner would have received it.  However, the administrative record does not establish that respondent sent a potential default letter to petitioner’s last known address.” 2019 T. C. Memo. 129, at p. 28.

Although Coleman did drop the ball a couple times (hi, Judge Holmes), IRS was not faultless.

“We have no way of knowing what respondent may have proposed for petitioner to cure the noncompliance if he indeed sent a potential default letter. What we do know is that petitioner cured the noncompliance promptly once he discovered that he owed additional amounts.  Notably, respondent did not revoke the release of the liens for the years at issue associated with the terminated OIC until after petitioner had already paid the income tax liabilities due, and he did not issue the notice of intent to levy at issue in the original and supplemental CDP hearings until over one year after petitioner had paid the tax.” 2019 T. C. Memo. 129, at p. 29. (Footnote omitted, but read it. It says the termination letter said Coleman failed to cure by a date certain, which seems to show that paying up cures the default in his case).

So Judge Goeke sends them back to appeals, recommending a new SO this time.